Peso drops to 56.11 vs US dollar
(UPDATE) THE Philippine peso continued to fall against the United States dollar, closing at P56.11 on Wednesday.
Even after the Bangko Sentral ng Pilipinas (BSP) raised its key policy rate by 0.50 to 3.75 on Aug. 18, 2022, the Philippine peso-US dollar exchange rate kept declining.
The peso fell for the eighth straight trading day since August 11, when it closed at P55.30: $1.
The Philippine peso is expected to continue losing value versus the US dollar this week since market participants expect US inflation to stay high.
Fitch Solutions predicts that the BSP will “remain hawkish” and raise rates further to raise the policy rate from 3.75 percent to 4.5 percent by the end of the year.
The most recent Fitch projection is higher than the prior one, which was 4.25 percent.
“We expect global monetary conditions to tighten further over the coming months, which will likely exert more depreciatory pressures on the peso,” said Fitch Solutions.
“This will likely prompt the BSP to hike interest rates to safeguard exchange rate stability,” added Fitch Solutions.
Fitch Solutions explained that the US Fed’s “hawkish shift” since the start of the year has caused the Philippine peso to depreciate sharply against the dollar, by around 10 percent (year to date) so far.
Michael Ricafort, chief economist at Rizal Commercial Banking Corp., attributed the “hawkish signals” from the United States Federal Reserve.
However, in an August 22 report, he mentioned that the US dollar-peso exchange rate “eased” from P56.45 record high matched July 12 and 14, 2022.
Ricafort added that the recent Philippine peso depreciation has already been “overdone” compared to usual interest differential of 1 percent to 2 percent per year and relative to other regional currencies.